• Lakeland Financial Reports Second Quarter Net Income of $22.5 million, and Reaches $5.0 Billion in Total Loans, Representing 5% Annual Average Loan Growth

    Source: Nasdaq GlobeNewswire / 25 Jul 2024 07:00:40   America/New_York

    WARSAW, Ind., July 25, 2024 (GLOBE NEWSWIRE) -- Lakeland Financial Corporation (Nasdaq Global Select/LKFN), parent company of Lake City Bank, today reported net income of $22.5 million for the three months ended June 30, 2024, which represents an increase of $7.9 million, or 54%, compared with net income of $14.6 million for the three months ended June 30, 2023. Diluted earnings per share were $0.87 for the second quarter of 2024 and increased 53% compared to $0.57 for the second quarter of 2023. On a linked quarter basis, net income decreased $852,000, or 4%, from first quarter 2024 net income of $23.4 million and diluted earnings per share decreased $0.04 or 4% from $0.91 at March 31, 2024.

    Pretax pre-provision earnings, which is a non-GAAP measure, were $35.4 million for the three months ended June 30, 2024, an increase of $18.1 million, or 105%, compared to $17.3 million for the three months ended June 30, 2023. On a linked quarter basis, pretax pre-provision earnings increased $6.1 million, or 21%, compared to $29.3 million for the first quarter of 2024.

    “We are pleased to report healthy loan and core deposit growth during the first six months of 2024. While the financial services sector continues to battle the impact of higher interest rates, we are pleased with our overall operating performance in 2024. We have experienced healthy increases in core noninterest income categories, which have contributed to annual revenue growth of 6%, or $6.9 million, for the first six months of 2024. We opened our 54th branch and eighth location in the Indianapolis region this week and have three additional branches in the market in various stages of planning,” stated David M. Findlay, Chairman and Chief Executive Officer. “We are encouraged by the significant investments taking place throughout our footprint and are excited to play a role in the great expansion and innovation occurring throughout the state.”

    The company further reported net income of $46.0 million for the six months ended June 30, 2024, versus $38.9 million for the comparable period of 2023, an increase of 18%, or $7.1 million. Diluted earnings per share also increased 18% to $1.78 for the six months ended June 30, 2024, versus $1.51 for the comparable period of 2023. Pretax pre-provision earnings were $64.7 million for the six months ended June 30, 2024, an increase of $15.0 million, or 30%, compared to $49.7 million for the six months ended June 30, 2023.

    Quarterly Financial Performance

    Second Quarter 2024 versus Second Quarter 2023 highlights:

    • Return on average equity of 14.19%, compared to 9.70%
    • Return on average assets of 1.37%, compared to 0.91%
    • Tangible book value per share grew by $2.37, or 10%, to $25.34
    • Average loans grew by $237.1 million, or 5%, to $5.03 billion
    • Average investments declined by $92.1 million, or 8%
    • Core deposit growth of $247.8 million, or 5%
    • Net interest margin of 3.17% versus 3.28%
    • Noninterest income growth of $8.9 million, or 78%
    • Net gain on Visa shares of $9.0 million
    • Revenue improves by 15% to $68.7 million
    • Noninterest expense declined by $9.4 million, or 22%
    • Provision expense of $8.5 million, compared to $800,000
    • Net charge offs of $949,000 versus net recoveries of $43,000
    • Nonperforming loans increased from $18.0 million to $57.2 million
    • Watch list loans as a percentage of total loans increased to 5.31% from 3.83%
    • Average equity to average assets increased 23 basis points to 9.62%
    • Total risk-based capital ratio of 15.54%, compared to 14.93%
    • Cash dividends per share increased by $0.02, or 4%, to $0.48 per share
    • Tangible capital ratio improved to 9.91%, compared to 9.04%

    Second Quarter 2024 versus First Quarter 2024 highlights:

    • Return on average equity of 14.19%, compared to 14.59%
    • Return on average assets of 1.37%, compared to 1.44%
    • Average loans grew by $63.8 million, or 1%, to $5.03 billion
    • Average investments declined by $39.7 million, or 3%
    • Core deposits increased by $170.2 million, or 3%
    • Net interest margin improved 2 basis points, or 1%
    • Noninterest income increased by $7.8 million, or 62%
    • Noninterest expense increased by $2.6 million, or 9%
    • Provision expense of $8.5 million compared to $1.5 million
    • Net charge offs of $949,000 compared to $312,000
    • Nonperforming loans increased from $14.8 million to $57.2 million
    • Watch list loans as a percentage of total loans increased to 5.31% from 3.67%
    • Total risk-based capital ratio improved to 15.54% from 15.46%
    • Tangible capital ratio of 9.91%, compared to 9.80%
    • Tangible common equity growth of $7.6 million, or 1%

    The company’s performance in the second quarter was impacted by two non-routine events. During the quarter, the bank recognized $9.0 million in net gains on Visa shares previously carried at cost basis of $0 since 2008. On April 8, 2024, Visa Inc. announced the commencement of an exchange offer for Visa Class B-1 common stock and the bank subsequently tendered its Visa Class B-1 common stock in exchange for a combination of Visa Class C common stock and Visa Class B-2 common stock. After entering the exchange, the bank redeemed two-thirds of its Visa Class C common stock and sold its remaining Visa B-2 common stock in the secondary market. As of June 30, 2024, the bank holds 1,574 shares of Visa Class C common stock valued at $1.7 million and intends to redeem these remaining shares during the third quarter of 2024 pursuant to the Visa redemption provisions. In addition, the company incurred a one-time accrual of $4.5 million related to the resolution of a legal matter during the second quarter. The lawsuit against the bank related to this resolution was dismissed by the court.

    Capital Strength

    The company’s total capital as a percentage of risk-weighted assets improved to 15.54% at June 30, 2024, compared to 14.93% at June 30, 2023 and 15.46% at March 31, 2024. These capital levels are well in excess of the 10.00% regulatory threshold required to be characterized as “well capitalized” and reflect a strengthening of the company's exceptionally sound capital base.

    The company’s tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, improved to 9.91% at June 30, 2024, compared to 9.04% at June 30, 2023 and 9.80% at March 31, 2024. Unrealized losses from available-for-sale investment securities were $194.9 million at June 30, 2024, compared to $202.0 million at June 30, 2023 and $189.9 million at March 31, 2024. When excluding the impact of accumulated other comprehensive income (loss) on tangible common equity and tangible assets, the company’s ratio of adjusted tangible common equity to adjusted tangible assets, a non-GAAP financial measure, improved to 12.18% at June 30, 2024, compared to 11.45% at June 30, 2023 and 12.03% at March 31, 2024.

    “Strong capital levels are critical to the bank’s ability to grow our balance sheet and result from our long and consistent track record of profitability,” commented Kristin L. Pruitt, President. “Our capital position provides stability to support our continued balance sheet growth, and also provides for our dividend growth for shareholders.”

    As announced on July 9, 2024, the board of directors approved a cash dividend for the second quarter of $0.48 per share, payable on August 5, 2024, to shareholders of record as of July 25, 2024. The second quarter dividend per share represents a 4% increase from the $0.46 dividend per share paid for the second quarter of 2023.

    Loan Portfolio

    Average total loans of $5.03 billion in the second quarter of 2024, increased $237.1 million, or 5%, from $4.80 billion for the second quarter of 2023, and increased $63.8 million, or 1%, from $4.97 billion for the first quarter of 2024. Average total loans for the six months ended June 30, 2024, were $5.00 billion, an increase of $241.2 million, or 5%, from $4.76 billion for the six months ended June 30, 2023.

    “We are pleased to have crossed the $5.0 billion milestone for loans during 2024, which has been achieved through our 152 year history of organic growth,” added Findlay. “As we look to the future, we are confident that our Indiana communities will continue the strong economic growth and vitality that we have experienced over the past several years. In fact, 40% of our footprint is projected to experience high growth in population of 10%-70% from 2015 through 2050 as measured by the Indiana Business Center and the Kelley School of Business at Indiana University.”

    Total loans increased by $190.1 million, or 4%, from $4.86 billion as of June 30, 2023, to $5.05 billion as of June 30, 2024. The increase in loans occurred across much of the portfolio with increases to commercial real estate and multi-family residential loans of $127.0 million, or 5%, commercial and industrial working lines of credit loans of $79.1 million, or 13%, and total consumer 1-4 family mortgage loans of $38.5 million, or 9%. These increases were offset by decreases to commercial and industrial non-working capital loans of $22.7 million, or 3%, total agribusiness and agricultural loans of $13.9 million, or 4%, and other commercial loans of $24.3 million, or 20%. On a linked quarter basis, total loans increased by $54.8 million, or 1%, from $4.998 billion to $5.05 billion at June 30, 2024. The linked quarter increase was primarily a result of growth in commercial and industrial working lines of credit loans $51.3 million, or 8%, and growth in total commercial real estate and multi-family residential loans of $25.9 million, or 1%.

    Commercial loan originations for the second quarter included approximately $369.0 million in loan originations, offset by approximately $324.0 million in commercial loan pay downs. Line of credit usage increased to 41% on June 30, 2024, compared to 40% at June 30, 2023, and 39% at March 31, 2024. Total available lines of credit contracted by $107.0 million, or 2%, as compared to a year ago, and line usage increased by $5.0 million, or less than 1%, for the same period. The company has limited exposure to commercial office space borrowers, all of which are in the bank’s Indiana markets. Loans totaling $101.2 million for this sector represented 2% of total loans at June 30, 2024, an increase of $27.6 million, or 37%, from March 31, 2024. Commercial real estate loans secured by multi-family residential properties and secured by non-farm non-residential properties were approximately 205% of total risk-based capital at June 30, 2024.

    Diversified Deposit Base

    The bank's diversified deposit base has remained stable on a year over year basis and on a linked quarter basis.

     
    DEPOSIT DETAIL
    (unaudited, in thousands)
     
     June 30, 2024 March 31, 2024 June 30, 2023
    Retail$1,724,777 29.9% $1,770,007 31.5% $1,821,607 33.6%
    Commercial 2,150,127 37.3   2,117,536 37.7   2,082,564 38.4 
    Public fund 1,727,593 30.0   1,544,775 27.5   1,450,527 26.7 
    Core deposits 5,602,497 97.2   5,432,318 96.7   5,354,698 98.7 
    Brokered deposits 161,040 2.8   185,767 3.3   68,361 1.3 
    Total$5,763,537 100.0% $5,618,085 100.0% $5,423,059 100.0%


    Total deposits increased $340.5 million, or 6%, from $5.42 billion as of June 30, 2023, to $5.76 billion as of June 30, 2024. The increase in total deposits was driven by an increase in core deposits (which excludes brokered deposits) of $247.8 million, or 5%. Total core deposits at June 30, 2024 were $5.60 billion and represented 97% of total deposits, as compared to $5.35 billion and 99% of total deposits at June 30, 2023. Brokered deposits were $161.0 million, or 3% of total deposits, at June 30, 2024, compared to $68.4 million, or 1% of total deposits, at June 30, 2023.

    Core deposit composition remains stable with commercial deposits accounting for 37% of total deposits, public funds increasing to 30% of total deposits and retail deposits contracting to 30% of total deposits as of June 30, 2024. The change in composition of core deposits since June 30, 2023, reflects growth in commercial deposits and public funds deposits. Commercial deposits grew annually by $67.6 million to $2.15 billion, or 3%. Public funds deposits grew annually by $277.1 million to $1.73 billion, or 19%. Retail deposits contracted annually by $96.8 million, or 5%. Public fund growth was positively impacted by the addition of a new public fund customer in the Lake City Bank footprint and the addition of its operating accounts. Net retail outflows since June 30, 2023 reflect the continued utilization of deposits from peak savings levels during 2021.

    “We are pleased that core deposits represent 97% of total deposits and annual core deposit growth has exceeded loan funding requirements in 2024, enabling the bank to reduce reliance on more expensive wholesale funding. Continued growth of our core deposit franchise is critical to our long-term growth,” noted Findlay. “Checking account growth is evident across all three deposit sectors despite contraction in retail deposits.”

    On a linked quarter basis, total deposits increased $145.5 million, or 3%, from $5.62 billion at March 31, 2024 to $5.76 billion at June 30, 2024. Core deposits increased by $170.2 million, or 3%, while brokered deposits decreased by $24.7 million, or 13%. Linked quarter growth in core deposits resulted from expansion in public fund deposits of $182.8 million, or 12%, and commercial deposits of $32.6 million, or 2%. Retail deposits contracted by $45.2 million, or 3%.

    Average total deposits were $5.82 billion for the second quarter of 2024, an increase of $268.8 million, or 5%, from $5.55 billion for the second quarter of 2023. Average interest-bearing deposits drove the increase to average total deposits, increasing $488.3 million, or 12%. Contributing to this increase were increases to average interest-bearing checking accounts of $345.2 million, or 12%, and average time deposits of $214.2 million, or 26%. Offsetting these increases was a decrease to average savings deposits of $71.1 million, or 20%. Average noninterest-bearing demand deposits decreased by $219.5 million, or 15%.

    On a linked quarter basis, average total deposits increased by $189.5 million, or 3%, from $5.63 billion for the first quarter of 2024 to $5.82 billion for the second quarter of 2024. Average interest-bearing deposits drove the increase to total average deposits, increasing by $232.7 million, or 5%. Interest bearing checking accounts increased by $228.5 million, or 8%, and total average time deposits increased by $10.7 million, or 1%. Average noninterest-bearing demand deposits decreased by $43.2 million, or 3%.

    Checking account trends compared to June 30, 2023, demonstrate average aggregate checking account balance growth of $221.4 million, or 17%, for aggregate public fund checking account balances and $66.4 million, or 3%, for aggregate commercial checking account balances, offset by a contraction of $33.4 million, or 4%, for aggregate retail checking account balances. The number of accounts also has grown for all three segments, with growth of 3% for commercial accounts, 2% for retail accounts and 17% for public fund accounts.

    Deposits not covered by FDIC deposit insurance as a percentage of total deposits were 58% as of June 30, 2024, compared to 54% at both March 31, 2024, and June 30, 2023. Deposits not covered by FDIC deposit insurance or the Indiana Public Deposit Insurance Fund (which insures public fund deposits in Indiana), were 29% of total deposits as of June 30, 2024, compared to 27% at March 31, 2024, and 28% as of June 30, 2023. As of June 30, 2024, 98% of deposit accounts had deposit balances less than $250,000.

    Liquidity Overview

    The bank has robust liquidity resources. These resources include secured borrowings available from the Federal Home Loan Bank and the Federal Reserve Bank Discount Window. In addition, the bank has unsecured borrowing capacity through long established relationships within the brokered deposits markets, Federal Funds lines from correspondent bank partners, and Insured Cash Sweep (ICS) one-way buy funds available from the Intrafi network. As of June 30, 2024, the company had access to an aggregate of $3.3 billion in liquidity from these sources, compared to $2.9 billion at June 30, 2023 and $3.1 billion at March 31, 2024. Utilization from these sources totaled $161.0 million at June 30, 2024, compared to $468.4 million at June 30, 2023 and $385.8 million at March 31, 2024. Core deposits have historically represented, and currently represent, the primary funding resource of the bank at 96% of total deposits and purchased funds.

    Investment Portfolio Overview

    Total investment securities were $1.12 billion at June 30, 2024, reflecting a decrease of $67.3 million, or 6%, as compared to $1.19 billion at June 30, 2023. On a linked quarter basis, investment securities decreased $21.0 million, or 2%, due primarily to portfolio cash flows of $15.2 million and a decline in the fair value of available-for-sale securities of $5.0 million. Investment securities represented 17% of total assets on June 30, 2024, compared to 18% on June 30, 2023, and 17% on March 31, 2024. The ratio of investment securities as a percentage of total assets remains elevated over historical levels of approximately 12% to 14%. The company expects the investment securities portfolio as a percentage of assets to continue to decrease over time as the proceeds from pay downs, sales and maturities are used to fund loan portfolio growth and for general liquidity purposes. Tax equivalent adjusted effective duration for the investment portfolio was 6.5 years at June 30, 2024, compared to 6.6 years at March 31, 2024 and June 30, 2023. Effective duration of the investment portfolio remains elevated as compared to 4.0 years at December 31, 2019 before the deployment of excess liquidity to the investment portfolio and the rise in interest rates from the recent tightening cycle by the Federal Reserve. The company anticipates receiving principal and interest cash flows of approximately $52.4 million throughout the remainder of 2024 from its investment securities portfolio.

    Net Interest Margin

    Net interest margin was 3.17% for the second quarter of 2024, representing an 11 basis point decrease from 3.28% for the second quarter of 2023. Earning assets yields increased by 42 basis points to 6.07% for the second quarter of 2024, up from 5.65% for the second quarter of 2023. The increase in earning asset yields was offset by an increase in the company's funding costs of 53 basis points as interest expense as a percentage of average earning assets increased to 2.90% for the second quarter of 2024 from 2.37% for the second quarter of 2023. While earning asset yields benefited from a 25 basis point increase in the target Federal Funds Rate between June 30, 2023 and 2024, the company has experienced an offsetting increase to funding costs from increased competition for deposits throughout the industry. Notably, a deposit mix shift from noninterest bearing deposits to interest bearing deposits has further eroded net interest margin with noninterest bearing deposits as a percentage of total deposits declining to 21% at June 30, 2024, compared to 27% at June 30, 2023 and 22% at March 31, 2024.

    Linked quarter net interest margin expanded by 2 basis points to 3.17% for the second quarter of 2024, compared to 3.15% for the first quarter of 2024. Average earning asset yields increased by 10 basis points from 5.97% during the first quarter of 2024 to 6.07% during the second quarter of 2024 and were offset by an 8 basis point increase in interest expense as a percentage of average earning assets. The increase in linked quarter interest expense was driven by continued upward pressure in deposit costs.

    “The expansion of net interest margin on a linked quarter basis is directionally encouraging and highlights the positive impact of loan growth on earning asset yields. In addition, we have successfully tested deposit rate sensitivity for selective products and will continue to evaluate additional opportunities in the future,” stated Lisa M. O’Neill, Executive Vice President, and Chief Financial Officer. “Our reduced asset sensitivity posture positions the bank well for the anticipated Federal Reserve Bank easing that is expected to occur in the second half of 2024.”

    The cumulative loan beta, which measures the sensitivity of a bank's average loan yield to changes in short-term interest rates, is 56% for the current rate-tightening cycle, compared to 61% during the prior tightening cycle from 2016 through 2019. The cumulative deposit beta, which measures the sensitivity of a bank's deposit cost to changes in short-term interest rates, is 54% for the current rate-tightening cycle, compared to 45% during the prior tightening cycle.

    Net interest income was $48.3 million for the second quarter of 2024, representing a decrease of $228,000, or less than 1%, as compared to the second quarter of 2023. On a linked quarter basis, net interest income increased $880,000, or 2%, from $47.4 million for the first quarter of 2024. Net interest income decreased by $4.3 million, or 4%, from $100.0 million for the six months ended June 30, 2023 to $95.7 million for the six months ended June 30, 2024.

    Asset Quality

    The company recorded a provision for credit losses of $8.5 million in the second quarter of 2024, an increase of $7.7 million, as compared to $800,000 in the second quarter of 2023. On a linked quarter basis, the provision expense increased by $7.0 million, from $1.5 million for the first quarter of 2024. The provision expense recorded during the second quarter of 2024 was primarily attributable to an increase in the specific reserve allocation from the downgrade of a single $43.3 million commercial relationship that was placed on nonperforming status during the second quarter of 2024. The downgraded borrower is an industrial company in Northern Indiana.

    The ratio of allowance for credit losses to total loans was 1.60% at June 30, 2024, up from 1.48% at June 30, 2023, and 1.46% at March 31, 2024. Net charge offs in the second quarter of 2024 were $949,000, compared to net recoveries of $43,000 in the second quarter of 2023 and net charge offs of $312,000 during the linked first quarter of 2024. Annualized net charge offs to average loans were 0.08% for the second quarter of 2024, compared to none for the second quarter of 2023 and 0.03% for the linked first quarter of 2024.

    Nonperforming assets increased $39.2 million, or 213%, to $57.6 million as of June 30, 2024, versus $18.4 million as of June 30, 2023. On a linked quarter basis, nonperforming assets increased $42.4 million, or 278%, compared to $15.2 million as of March 31, 2024. The ratio of nonperforming assets to total assets at June 30, 2024 increased to 0.88% from 0.28% at June 30, 2023 and from 0.23% at March 31, 2024. These increases were driven by the nonperforming loan relationship described above.

    Total individually analyzed and watch list loans increased by $82.2 million, or 44%, to $268.3 million as of June 30, 2024, versus $186.0 million as of June 30, 2023. On a linked quarter basis, total individually analyzed and watch list loans increased by $84.9 million, or 46%, from $183.3 million at March 31, 2024. Watch list loans as a percentage of total loans increased by 148 basis points to 5.31% at June 30, 2024, compared to 3.83% at June 30, 2023, and increased by 164 basis points from 3.67% at March 31, 2024. The increase in individually analyzed and watch list loans during the second quarter of 2024 was primarily driven by the downgrade of the $43.3 million commercial relationship to nonperforming status. In addition to this relationship, three other commercial relationships with an aggregate balance of $40.5 million were downgraded to the watch list during the second quarter of 2024.

    “While we have not experienced any broad-based loan portfolio concerns, we are disappointed by the increase in our nonperforming loans, driven by the single industrial credit relationship. We are working closely with the borrower to improve the operating performance of the business,” stated Findlay. “Encouragingly, the second quarter Commercial Portfolio Reviews did not identify any meaningful shifts in credit quality across the bank’s diversified loan portfolio,” Findlay continued. “We continue to stress test our portfolio, particularly on the interest rate front, and have not identified any meaningful concerns. In addition, our commercial real estate portfolio continues to be a focus, and while we have identified a few downgrades in that portfolio, the portfolio is performing well overall. Finally, with an allowance for credit losses at 1.6% of total loans, we continue to approach asset quality management conservatively.”

    Noninterest Income

    The company’s noninterest income increased $8.9 million, or 78%, to $20.4 million for the second quarter of 2024, compared to $11.5 million for the second quarter of 2023. The increase in noninterest income was driven primarily by the net gain on Visa shares of $9.0 million. Wealth advisory fees increased $326,000, or 14%, because of new volume growth in addition to favorable market performance. Bank owned life insurance income increased $197,000, or 28%, primarily from improved market performance of the company's variable bank owned life insurance policies. Offsetting these increases was a decrease in interest rate swap fee income of $794,000, or 100%, due to no new swap fee activity during the quarter. Adjusted core noninterest income, a non-GAAP financial measure that excludes the impact of certain non-routine events, including the net gain on Visa shares referenced above, was $11.4 million for the second quarter of 2024, a decrease of $73,000, or 1%, compared to $11.5 million for the second quarter of 2023.

    Noninterest income for the second quarter of 2024 increased by $7.8 million, or 62%, on a linked quarter basis from $12.6 million during the first quarter of 2024. The linked quarter increase was driven largely by the net gain on Visa shares of $9.0 million. Offsetting this activity was a decrease in other income of $1.5 million, or 68%. Linked first quarter other income benefited from the recognition of a $1.0 million insurance recovery related to the wire fraud loss and income from the company's bank owned life insurance policies. Adjusted core non-interest income decreased $184,000, or 2%, from $11.6 million for the linked first quarter of 2024.

    Noninterest income increased by $11.2 million, or 52%, to $33.1 million for the six months ended June 30, 2024, compared to $21.8 million for the prior year six-month period. The increase in noninterest income was driven primarily by net gain on Visa shares of $9.0 million. Additionally, other income increased $1.6 million, or 120%, wealth advisory fees increased $581,000, or 13%, bank owned life insurance income increased $542,000, or 39%, and mortgage banking income increased $209,000. Other income increased from the insurance recovery and bank owned life insurance benefit received during the first quarter of 2024. Wealth advisory fees increased from new volume growth in addition to favorable market performance. Bank owned life insurance income increased through an improvement in market valuation for the company's variable bank owned life insurance policies, which are tied to the performance of the equity markets. Adjusted core noninterest income for the six months ended June 30, 2024, was $23.0 million, an increase of $1.2 million, or 6%, compared to $21.8 million for the six months ended June 30, 2023.

    Noninterest Expense

    Noninterest expense decreased $9.4 million, or 22%, to $33.3 million for the second quarter of 2024, compared to $42.7 million during the second quarter of 2023. Noninterest expense for the second quarter of 2023 included an $18.1 million wire fraud loss. During the second quarter 2024 salaries and benefits expense increased $4.8 million, or 42%, other expense increased $3.5 million, or 138%, and data processing fees and supplies expense increased $338,000, or 10%, compared to the second quarter of 2023. Salaries and employee benefits expense increased due to higher performance-based incentive compensation of $2.9 million, salaries and wages increases of $1.5 million and increased health insurance expense of $500,000. During the second quarter of 2023 performance-based incentive accruals were reversed by $1.9 million due to the wire fraud loss. Other expense increased primarily due to a $4.5 million litigation accrual. Data processing fees increased due to investments in software, digital banking, and core data processing technologies. Adjusted core noninterest expense, a non-GAAP financial measure that excludes the impact of certain non-routine operating events, including the litigation accrual referenced above, was $28.8 million for the three months ended June 30, 2024, an increase of $2.3 million, or 9%, from $26.5 million for the three months ended June 30, 2023.

    On a linked quarter basis, noninterest expense increased by $2.6 million, or 9%, from $30.7 million during the first quarter of 2024. Other expense increased by $3.9 million, or 172% due to the $4.5 million legal accrual. Offsetting this increase was a decrease in salaries and employee benefits of $675,000, or 4%, and a decrease in professional fees of $340,000, or 14%. The decrease in salaries and employee benefits was attributable to reduced variable compensation expense related to a decline in linked quarter market performance for the company's variable bank owned life insurance policies and a reduction in employee benefits expense caused by the timing of the company's annual HSA contributions. Professional fees decreased due primarily to a reduction in legal expense incurred during the quarter. Adjusted core noninterest expense decreased by $1.9 million, or 6%, on a linked quarter basis from $30.7 million for the first quarter of 2024.

    Noninterest expense decreased by $8.1 million, or 11%, for the six months ended June 30, 2024, to $64.0 million compared to $72.2 million for the six months ended June 30, 2023. The primary driver behind the decrease was the $18.1 million wire fraud loss recorded during the second quarter of 2023. Offsetting this decrease were increases to salaries and employee benefits expense of $5.6 million, or 20%, other expense of $3.2 million or 63%, data processing fees of $725,000, or 10%, and professional fees of $416,000, or 10%. The increase to data processing fees resulted from continued investment in customer-facing and operational technology solutions. Professional fees increased due to higher costs to implement technology solutions as well as higher legal and accounting costs. Adjusted core noninterest expense was $59.5 million for the six months ended June 30, 2024, an increase of $3.5 million, or 6%, from $56.0 million recorded during the comparable period of 2023.

    “We continue to invest in the disciplined growth of the bank with a focus on people and technology. Our teams have grown to support revenue generation positions, technology, data analytics, and credit support functions,” stated Findlay. “We are also thrilled to support our annual internship program with seventeen interns that are participating in numerous departments throughout the bank and support our talent generation pipeline.”

    The company’s efficiency ratio was 48.5% for the second quarter of 2024, compared to 71.2% for the second quarter of 2023 and 51.2% for the linked first quarter of 2024. The company's adjusted core efficiency ratio, a non-GAAP measure that excludes the impact of certain non-routine operating events, was 48.2% for the second quarter of 2024, compared to 44.2% for the second quarter of 2023 and 52.0% for the linked first quarter of 2024.

    The company's efficiency ratio was 49.7% for the six months ended June 30, 2024, compared to 59.2% for the comparable period in 2023. The company's adjusted core efficiency ratio was 50.1% for the six months ended June 30, 2024 compared to 45.9% for the comparable period in 2023.

    Information regarding Lakeland Financial Corporation may be accessed on the home page of its subsidiary, Lake City Bank, at lakecitybank.com. The company’s common stock is traded on the Nasdaq Global Select Market under “LKFN.” Lake City Bank, a $6.6 billion bank headquartered in Warsaw, Indiana, was founded in 1872 and serves Central and Northern Indiana communities with 54 branch offices and a robust digital banking platform. Lake City Bank's community banking model prioritizes building in-market long-term customer relationships while delivering technology-forward solutions for retail and commercial clients.

    This document contains, and future oral and written statements of the company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of the company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “continue,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. The company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and, accordingly, the reader is cautioned not to place undue reliance on any forward-looking statements made by the company. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the company undertakes no obligation to update any statement in light of new information or future events. Numerous factors could cause the company’s actual results to differ from those reflected in forward-looking statements, including the effects of economic, business and market conditions and changes, particularly in our Indiana market area, including prevailing interest rates and the rate of inflation; governmental monetary and fiscal policies; the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand and the values and liquidity of loan collateral, securities and other interest sensitive assets and liabilities; and changes in borrowers’ credit risks and payment behaviors, as well as those identified in the company’s filings with the Securities and Exchange Commission, including the company’s Annual Report on Form 10-K and quarterly reports on Form 10-Q.

     
    LAKELAND FINANCIAL CORPORATION
    SECOND QUARTER 2024 FINANCIAL HIGHLIGHTS
     
     Three Months Ended Six Months Ended
    (Unaudited – Dollars in thousands, except per share data)June 30, March 31, June 30, June 30, June 30,
    END OF PERIOD BALANCES 2024   2024   2023   2024   2023 
    Assets$6,568,807  $6,566,861  $6,509,546  $6,568,807  $6,509,546 
    Investments 1,123,803   1,144,816   1,191,139   1,123,803   1,191,139 
    Loans 5,052,341   4,997,559   4,862,260   5,052,341   4,862,260 
    Allowance for Credit Losses 80,711   73,180   72,058   80,711   72,058 
    Deposits 5,763,537   5,618,085   5,423,059   5,763,537   5,423,059 
    Brokered Deposits 161,040   185,767   68,361   161,040   68,361 
    Core Deposits (1) 5,602,497   5,432,318   5,354,698   5,602,497   5,354,698 
    Total Equity 654,590   647,009   591,995   654,590   591,995 
    Goodwill Net of Deferred Tax Assets 3,803   3,803   3,803   3,803   3,803 
    Tangible Common Equity (2) 650,787   643,206   588,192   650,787   588,192 
    Adjusted Tangible Common Equity (2) 820,534   809,395   765,090   820,534   765,090 
    AVERAGE BALANCES         
    Total Assets$6,642,954  $6,554,468  $6,432,929  $6,598,711  $6,422,562 
    Earning Assets 6,295,281   6,216,929   6,096,284   6,256,105   6,082,009 
    Investments 1,118,776   1,158,503   1,210,870   1,138,639   1,230,421 
    Loans 5,034,851   4,971,020   4,797,742   5,002,935   4,761,784 
    Total Deposits 5,819,962   5,630,431   5,551,145   5,725,196   5,519,545 
    Interest Bearing Deposits 4,589,059   4,356,328   4,100,749   4,472,693   3,963,668 
    Interest Bearing Liabilities 4,666,136   4,532,137   4,287,167   4,599,136   4,177,658 
    Total Equity 638,999   645,007   603,999   642,003   594,852 
    INCOME STATEMENT DATA         
    Net Interest Income$48,296  $47,416  $48,524  $95,712  $100,043 
    Net Interest Income-Fully Tax Equivalent 49,493   48,683   49,842   98,176   102,727 
    Provision for Credit Losses 8,480   1,520   800   10,000   5,150 
    Noninterest Income 20,439   12,612   11,501   33,051   21,815 
    Noninterest Expense 33,333   30,705   42,734   64,038   72,168 
    Net Income 22,549   23,401   14,611   45,950   38,889 
    Pretax Pre-Provision Earnings (2) 35,402   29,323   17,291   64,725   49,690 
    PER SHARE DATA         
    Basic Net Income Per Common Share$0.88  $0.91  $0.57  $1.79  $1.52 
    Diluted Net Income Per Common Share 0.87   0.91   0.57   1.78   1.51 
    Cash Dividends Declared Per Common Share 0.48   0.48   0.46   0.96   0.92 
    Dividend Payout 55.17%  52.75%  80.70%  53.93%  60.93%
    Book Value Per Common Share (equity per share issued)$25.49  $25.20  $23.12  $25.49  $23.12 
    Tangible Book Value Per Common Share (2) 25.34   25.05   22.97   25.34   22.97 
    Market Value – High$66.62  $73.22  $62.71  $73.22  $77.07 
    Market Value – Low 57.59   60.56   43.05   57.59   43.05 
     
    Three Months Ended    		 
    Six Months Ended
    (Unaudited – Dollars in thousands, except per share data)June 30, March 31, June 30, June 30, June 30,
    PER SHARE DATA (continued) 2024   2024   2023   2024   2023 
    Basic Weighted Average Common Shares Outstanding 25,678,231   25,657,063   25,607,663   25,667,647   25,595,412 
    Diluted Weighted Average Common Shares Outstanding 25,742,871   25,747,643   25,686,354   25,746,773   25,696,370 
    KEY RATIOS         
    Return on Average Assets 1.37%  1.44%  0.91%  1.40%  1.22%
    Return on Average Total Equity 14.19   14.59   9.70   14.39   13.18 
    Average Equity to Average Assets 9.62   9.84   9.39   9.73   9.26 
    Net Interest Margin 3.17   3.15   3.28   3.16   3.41 
    Efficiency (Noninterest Expense/Net Interest Income
    plus Noninterest Income)    		 48.49   51.15   71.19   49.73   59.22 
    Loans to Deposits 87.66   88.95   89.66   87.66   89.66 
    Investment Securities to Total Assets 17.11   17.43   18.30   17.11   18.30 
    Tier 1 Leverage (3) 11.98   12.01   11.54   11.98   11.54 
    Tier 1 Risk-Based Capital (3) 14.29   14.21   13.68   14.29   13.68 
    Common Equity Tier 1 (CET1) (3) 14.29   14.21   13.68   14.29   13.68 
    Total Capital (3) 15.54   15.46   14.93   15.54   14.93 
    Tangible Capital (2) 9.91   9.80   9.04   9.91   9.04 
    Adjusted Tangible Capital (2) 12.18   12.03   11.45   12.18   11.45 
    ASSET QUALITY         
    Loans Past Due 30 - 89 Days$1,615  $3,177  $1,207  $1,615  $1,207 
    Loans Past Due 90 Days or More 26   7   8   26   8 
    Nonaccrual Loans 57,124   14,762   18,004   57,124   18,004 
    Nonperforming Loans 57,150   14,769   18,012   57,150   18,012 
    Other Real Estate Owned 384   384   384   384   384 
    Other Nonperforming Assets 90   78   20   90   20 
    Total Nonperforming Assets 57,624   15,231   18,416   57,624   18,416 
    Individually Analyzed Loans 78,533   15,181   18,465   78,533   18,465 
    Non-Individually Analyzed Watch List Loans 189,726   168,133   167,562   189,726   167,562 
    Total Individually Analyzed and Watch List Loans 268,259   183,314   186,027   268,259   186,027 
    Gross Charge Offs 1,076   504   390   1,580   6,286 
    Recoveries 127   192   433   319   588 
    Net Charge Offs/(Recoveries) 949   312   (43)  1,261   5,698 
    Net Charge Offs/(Recoveries) to Average Loans 0.08%  0.03%  0.00%  0.05%  0.24%
    Credit Loss Reserve to Loans 1.60   1.46   1.48   1.60   1.48 
    Credit Loss Reserve to Nonperforming Loans 141.23   495.51   400.06   141.23   400.06 
    Nonperforming Loans to Loans 1.13   0.30   0.37   1.13   0.37 
    Nonperforming Assets to Assets 0.88   0.23   0.28   0.88   0.28 
     
    Three Months Ended    		 
    Six Months Ended
    (Unaudited – Dollars in thousands, except per share data)June 30,
    2024    		 March 31,
    2024    		 June 30,
    2023
    		 June 30,
    2024    		 June 30,
    2023
    ASSET QUALITY (continued)         
    Total Individually Analyzed and Watch List Loans to Total Loans 5.31%  3.67%  3.83%  5.31%  3.83%
    OTHER DATA         
    Full Time Equivalent Employees 653   628   632   653   632 
    Offices 53   53   53   53   53 

    ___________________________
    (1)  Core deposits equals deposits less brokered deposits.
    (2)  Non-GAAP financial measure - see “Reconciliation of Non-GAAP Financial Measures”.
    (3)  Capital ratios for June 30, 2024 are preliminary until the Call Report is filed.

    CONSOLIDATED BALANCE SHEETS (in thousands, except share data)   
    ​June 30,
    2024    		 December 31,
    2023
    ​(Unaudited) ​
    ASSETS   
    Cash and due from banks$60,887  $70,451 
    Short-term investments 60,290   81,373 
    Total cash and cash equivalents 121,177   151,824 
    ​   
    Securities available-for-sale, at fair value 993,057   1,051,728 
    Securities held-to-maturity, at amortized cost (fair value of $113,997 and $119,215, respectively) 130,746   129,918 
    Real estate mortgage loans held-for-sale 399   1,158 
    ​   
    Loans, net of allowance for credit losses of $80,711 and $71,972 4,971,630   4,844,562 
    ​   
    Land, premises and equipment, net 58,793   57,899 
    Bank owned life insurance 110,985   109,114 
    Federal Reserve and Federal Home Loan Bank stock 21,420   21,420 
    Accrued interest receivable 30,681   30,011 
    Goodwill 4,970   4,970 
    Other assets 124,949   121,425 
    Total assets$6,568,807  $6,524,029 
    ​   
    ​   
    LIABILITIES   
    Noninterest bearing deposits$1,212,989  $1,353,477 
    Interest bearing deposits 4,550,548   4,367,048 
    Total deposits 5,763,537   5,720,525 
        
    Federal Funds purchased 55,000   0 
    Federal Home Loan Bank advances 0   50,000 
    Total borrowings 55,000   50,000 
        
    Accrued interest payable 15,354   20,893 
    Other liabilities 80,326   82,818 
    Total liabilities 5,914,217   5,874,236 
    ​   
    STOCKHOLDERS’ EQUITY   
    Common stock: 90,000,000 shares authorized, no par value   
    25,968,167 shares issued and 25,503,744 outstanding as of June 30, 2024   
    25,903,686 shares issued and 25,430,566 outstanding as of December 31, 2023 126,871   127,692 
    Retained earnings 713,541   692,760 
    Accumulated other comprehensive income (loss) (170,458)  (155,195)
    Treasury stock, at cost (464,423 shares and 473,120 shares as of June 30, 2024 and December 31, 2023, respectively) (15,453)  (15,553)
    Total stockholders’ equity 654,501   649,704 
    Noncontrolling interest 89   89 
    Total equity 654,590   649,793 
    Total liabilities and equity$6,568,807  $6,524,029 


    CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except share and per share data)
    ​Three Months Ended June 30, Six Months Ended June 30,
    ​ 2024  2023   2024   2023 
    NET INTEREST INCOME       
    Interest and fees on loans       
    Taxable$84,226 $75,047  $166,268  $144,589 
    Tax exempt 632  960   1,532   1,861 
    Interest and dividends on securities       
    Taxable 3,104  3,376   6,143   6,889 
    Tax exempt 3,932  4,064   7,879   8,364 
    Other interest income 1,842  1,035   2,948   1,999 
    Total interest income 93,736  84,482   184,770   163,702 
    ​​ ​ ​ ​
    Interest on deposits 44,363  33,611   85,527   58,529 
    Interest on short-term borrowings 1,077  2,347   3,531   5,130 
    Total interest expense 45,440  35,958   89,058   63,659 
    ​​ ​ ​ ​
    NET INTEREST INCOME 48,296  48,524   95,712   100,043 
    ​​ ​ ​ ​
    Provision for credit losses 8,480  800   10,000   5,150 
    ​​ ​ ​ ​
    NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 39,816  47,724   85,712   94,893 
    ​​ ​ ​ ​
    NONINTEREST INCOME       
    Wealth advisory fees 2,597  2,271   5,052   4,471 
    Investment brokerage fees 478  428   1,000   962 
    Service charges on deposit accounts 2,806  2,726   5,497   5,356 
    Loan and service fees 3,048  3,002   5,900   5,848 
    Merchant and interchange fee income 892  929   1,755   1,806 
    Bank owned life insurance income 890  693   1,926   1,384 
    Interest rate swap fee income 0  794   0   794 
    Mortgage banking income (loss) 23  (35)  75   (134)
    Net securities gains (losses) 0  3   (46)  19 
    Net gain on Visa shares 9,011  0   9,011   0 
    Other income 694  690   2,881   1,309 
    Total noninterest income 20,439  11,501   33,051   21,815 
    ​​ ​ ​ ​
    NONINTEREST EXPENSE       
    Salaries and employee benefits 16,158  11,374   32,991   27,437 
    Net occupancy expense 1,698  1,681   3,438   3,253 
    Equipment costs 1,343  1,426   2,755   2,864 
    Data processing fees and supplies 3,812  3,474   7,651   6,926 
    Corporate and business development 1,265  1,298   2,646   2,729 
    FDIC insurance and other regulatory fees 816  803   1,605   1,598 
    Professional fees 2,123  2,049   4,586   4,170 
    Wire fraud loss 0  18,058   0   18,058 
    Other expense 6,118  2,571   8,366   5,133 
    Total noninterest expense 33,333  42,734   64,038   72,168 
    ​​ ​ ​ ​
    INCOME BEFORE INCOME TAX EXPENSE 26,922  16,491   54,725   44,540 
    Income tax expense 4,373  1,880   8,775   5,651 
    NET INCOME$22,549 $14,611  $45,950  $38,889 
    ​​ ​ ​ ​
    BASIC WEIGHTED AVERAGE COMMON SHARES 25,678,231  25,607,663   25,667,647   25,595,412 
    ​​ ​ ​ ​
    BASIC EARNINGS PER COMMON SHARE$0.88 $0.57  $1.79  $1.52 
    ​       
    DILUTED WEIGHTED AVERAGE COMMON SHARES 25,742,871  25,686,354   25,746,773   25,696,370 
    ​       
    DILUTED EARNINGS PER COMMON SHARE$0.87 $0.57  $1.78  $1.51 


     
    LAKELAND FINANCIAL CORPORATION
    LOAN DETAIL
    (unaudited, in thousands)
     
     June 30,
    2024    		 March 31,
    2024    		 June 30,
    2023
    Commercial and industrial loans:           
    Working capital lines of credit loans$697,754  13.8% $646,459  12.9% $618,655  12.7%
    Non-working capital loans 828,523  16.4   830,817  16.6   851,232  17.5 
    Total commercial and industrial loans 1,526,277  30.2   1,477,276  29.5   1,469,887  30.2 
         ​      
    Commercial real estate and multi-family residential loans:           
    Construction and land development loans 658,345  13.0   659,712  13.2   590,860  12.1 
    Owner occupied loans 830,018  16.4   833,410  16.7   806,072  16.6 
    Nonowner occupied loans 762,365  15.1   744,346  14.9   724,799  14.9 
    Multifamily loans 252,652  5.0   239,974  4.8   254,662  5.2 
    Total commercial real estate and multi-family residential loans 2,503,380  49.5   2,477,442  49.6   2,376,393  48.8 
         ​      
    Agri-business and agricultural loans:           
    Loans secured by farmland 161,410  3.2   167,271  3.3   176,807  3.6 
    Loans for agricultural production 199,654  4.0   200,581  4.0   198,155  4.1 
    Total agri-business and agricultural loans 361,064  7.2   367,852  7.3   374,962  7.7 
         ​      
    Other commercial loans 96,703  1.9   120,302  2.4   120,958  2.5 
    Total commercial loans 4,487,424  88.8   4,442,872  88.8   4,342,200  89.2 
         ​      
    Consumer 1-4 family mortgage loans:           
    Closed end first mortgage loans 259,094  5.1   260,633  5.2   229,078  4.7 
    Open end and junior lien loans 197,861  3.9   188,927  3.8   183,738  3.8 
    Residential construction and land development loans 12,952  0.3   10,956  0.2   18,569  0.4 
    Total consumer 1-4 family mortgage loans 469,907  9.3   460,516  9.2   431,385  8.9 
     ​   ​      
    Other consumer loans 97,895  1.9   97,369  2.0   92,139  1.9 
    Total consumer loans 567,802  11.2   557,885  11.2   523,524  10.8 
    Subtotal 5,055,226  100.0%  5,000,757  100.0%  4,865,724  100.0%
    Less:  Allowance for credit losses (80,711)    (73,180) ​  (72,058) ​
    Net deferred loan fees (2,885)    (3,198) ​  (3,464) ​
    Loans, net$4,971,630    $4,924,379  ​ $4,790,202  ​


     
    LAKELAND FINANCIAL CORPORATION
    DEPOSITS AND BORROWINGS
    (unaudited, in thousands)
     
     June 30,
    2024    		 March 31,
    2024    		 June 30,
    2023
    Noninterest bearing demand deposits$1,212,989 $1,254,200 $1,438,030
    Savings and transaction accounts:     
    Savings deposits 283,809  296,671  342,847
    Interest bearing demand deposits 3,274,179  3,041,025  2,819,385
    Time deposits:     
    Deposits of $100,000 or more 776,314  805,832  616,455
    Other time deposits 216,246  220,357  206,342
    Total deposits$5,763,537 $5,618,085 $5,423,059
    FHLB advances and other borrowings 55,000  200,000  400,000
    Total funding sources$5,818,537 $5,818,085 $5,823,059


     
    LAKELAND FINANCIAL CORPORATION
    AVERAGE BALANCE SHEET AND NET INTEREST ANALYSIS
    (UNAUDITED)
     
      Three Months Ended June 30, 2024 Three Months Ended March 31, 2024 Three Months Ended June 30, 2023
    (fully tax equivalent basis, dollars in thousands) Average Balance Interest Income Yield (1)/
    Rate    		 Average Balance Interest Income Yield (1)/
    Rate    		 Average Balance Interest Income Yield (1)/
    Rate
    Earning Assets                  
    Loans:                  
    Taxable (2)(3) $4,993,270  $84,226 6.78% $4,916,943  $82,042 6.71% $4,739,885  $75,047 6.35%
    Tax exempt (1)  41,581   783 7.57   54,077   1,118 8.31   57,857   1,198 8.31 
    Investments: (1)                  
    Securities  1,118,776   8,082 2.91   1,158,503   8,035 2.79   1,210,870   8,520 2.82 
    Short-term investments  2,836   35 4.96   2,710   33 4.90   2,308   26 4.52 
    Interest bearing deposits  138,818   1,807 5.24   84,696   1,073 5.10   85,364   1,009 4.74 
    Total earning assets $6,295,281  $94,933 6.07% $6,216,929  $92,301 5.97% $6,096,284  $85,800 5.65%
    Less:  Allowance for credit losses  (74,166)      (72,433)      (71,477)    
    Nonearning Assets                  
    Cash and due from banks  64,518       68,584       69,057     
    Premises and equipment  58,702       57,883       58,992     
    Other nonearning assets  298,619       283,505       280,073     
    Total assets $6,642,954      $6,554,468      $6,432,929     
                       
    Interest Bearing Liabilities                  
    Savings deposits $289,107  $48 0.07% $295,650  $49 0.07% $360,173  $65 0.07%
    Interest bearing checking accounts  3,275,502   33,323 4.09   3,046,958   30,365 4.01   2,930,285   27,226 3.73 
    Time deposits:                  
    In denominations under $100,000  217,146   1,871 3.47   224,139   1,918 3.44   198,864   1,147 2.31 
    In denominations over $100,000  807,304   9,121 4.54   789,581   8,832 4.50   611,427   5,173 3.39 
    Miscellaneous short-term borrowings  77,077   1,077 5.62   175,809   2,454 5.61   186,418   2,347 5.05 
    Total interest bearing liabilities $4,666,136  $45,440 3.92% $4,532,137  $43,618 3.87% $4,287,167  $35,958 3.36%
    Noninterest Bearing Liabilities                  
    Demand deposits  1,230,903       1,274,103       1,450,396     
    Other liabilities  106,916       103,221       91,367     
    Stockholders' Equity  638,999       645,007       603,999     
    Total liabilities and stockholders' equity $6,642,954      $6,554,468      $6,432,929     
    Interest Margin Recap                  
    Interest income/average earning assets    94,933 6.07%    92,301 5.97%    85,800 5.65%
    Interest expense/average earning assets    45,440 2.90     43,618 2.82     35,958 2.37 
    Net interest income and margin   $49,493 3.17%   $48,683 3.15%   $49,842 3.28%

    (1)  Tax exempt income was converted to a fully taxable equivalent basis at a 21 percent tax rate. The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) adjustment applicable to nondeductible interest expenses. Taxable equivalent basis adjustments were $1.20 million, $1.27 million and $1.32 million in the three-month periods ended June 30, 2024, March 31, 2024 and June 30, 2023, respectively.
    (2)  Loan fees, which are immaterial in relation to total taxable loan interest income for the three months ended June 30, 2024, March 31, 2024 and June 30, 2023, are included as taxable loan interest income.
    (3)  Nonaccrual loans are included in the average balance of taxable loans.

    Reconciliation of Non-GAAP Financial Measures

    Tangible common equity, adjusted tangible common equity, tangible assets, adjusted tangible assets, tangible book value per common share, tangible common equity to tangible assets, adjusted tangible common equity to adjusted tangible assets, and pretax pre-provision earnings are non-GAAP financial measures calculated based on GAAP amounts. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets from the calculation of equity, net of deferred tax. Tangible assets are calculated by excluding the balance of goodwill and other intangible assets from the calculation of total assets, net of deferred tax. Adjusted tangible assets and adjusted tangible common equity remove the fair market value adjustment impact of the available-for-sale investment securities portfolio in accumulated other comprehensive income (loss) ("AOCI"). Tangible book value per common share is calculated by dividing tangible common equity by the number of shares outstanding less true treasury stock. Pretax pre-provision earnings is calculated by adding net interest income to noninterest income and subtracting noninterest expense. Because not all companies use the same calculation of tangible common equity and tangible assets, this presentation may not be comparable to other similarly titled measures calculated by other companies. However, management considers these measures of the company’s value meaningful to understanding of the company’s financial information and performance.

    A reconciliation of these non-GAAP financial measures is provided below (dollars in thousands, except per share data).

     Three Months Ended Six Months Ended
     Jun. 30, 2024 Mar. 31, 2024 Jun. 30, 2023 Jun. 30, 2024 Jun. 30, 2023
    Total Equity$654,590  $647,009  $591,995  $654,590  $591,995 
    Less: Goodwill (4,970)  (4,970)  (4,970)  (4,970)  (4,970)
    Plus: DTA Related to Goodwill 1,167   1,167   1,167   1,167   1,167 
    Tangible Common Equity 650,787   643,206   588,192   650,787   588,192 
    Market Value Adjustment in AOCI 169,747   166,189   176,898   169,747   176,898 
    Adjusted Tangible Common Equity 820,534   809,395   765,090   820,534   765,090 
              
    Assets$6,568,807  $6,566,861  $6,509,546  $6,568,807  $6,509,546 
    Less: Goodwill (4,970)  (4,970)  (4,970)  (4,970)  (4,970)
    Plus: DTA Related to Goodwill 1,167   1,167   1,167   1,167   1,167 
    Tangible Assets 6,565,004   6,563,058   6,505,743   6,565,004   6,505,743 
    Market Value Adjustment in AOCI 169,747   166,189   176,898   169,747   176,898 
    Adjusted Tangible Assets 6,734,751   6,729,247   6,682,641   6,734,751   6,682,641 
              
    Ending Common Shares Issued 25,679,066   25,677,399   25,607,663   25,679,066   25,607,663 
              
    Tangible Book Value Per Common Share$25.34  $25.05  $22.97  $25.34  $22.97 
              
    Tangible Common Equity/Tangible Assets 9.91%  9.80%  9.04%  9.91%  9.04%
    Adjusted Tangible Common Equity/Adjusted Tangible Assets 12.18%  12.03%  11.45%  12.18%  11.45%
              
    Net Interest Income$48,296  $47,416  $48,524  $95,712  $100,043 
    Plus:  Noninterest Income 20,439   12,612   11,501   33,051   21,815 
    Minus:  Noninterest Expense (33,333)  (30,705)  (42,734)  (64,038)  (72,168)
              
    Pretax Pre-Provision Earnings$35,402  $29,323  $17,291  $64,725  $49,690 


    Adjusted core noninterest income, adjusted core noninterest expense, adjusted earnings before income taxes, core operational profitability, core operational diluted earnings per common share and adjusted core efficiency ratio are non-GAAP financial measures calculated based on GAAP amounts. These adjusted amounts are calculated by excluding the impact of the net gain on Visa shares, legal accrual, and wire fraud loss and associated insurance and loss recoveries and adjustments to salaries and employee benefits expense for the periods presented below. Management considers these measures of financial performance to be meaningful to understanding the company’s core business performance for these periods.

    A reconciliation of these non-GAAP financial measures is provided below (dollars in thousands, except per share data).

     Three Months Ended Six Months Ended
     Jun. 30, 2024 Mar. 31, 2024 Jun. 30, 2023 Jun. 30, 2024 Jun. 30, 2023
    Noninterest Income$20,439  $12,612  $11,501  $33,051  $21,815 
    Less: Net Gain on Visa Shares (9,011)  0   0   (9,011)  0 
    Less: Insurance Recoveries 0   (1,000)  0   (1,000)  0 
    Adjusted Core Noninterest Income$11,428  $11,612  $11,501  $23,040  $21,815 
              
    Noninterest Expense$33,333  $30,705  $42,734  $64,038  $72,168 
    Less: Legal Accrual (4,537)  0   0   (4,537)  0 
    Less: Wire Fraud Loss 0   0   (18,058)  0   (18,058)
    Plus: Salaries and Employee Benefits (1) 0   0   1,850   0   1,850 
    Adjusted Core Noninterest Expense$28,796  $30,705  $26,526  $59,501  $55,960 
              
    Earnings Before Income Taxes$26,922  $27,803  $16,491  $54,725  $44,540 
    Adjusted Core Impact:         
    Noninterest Income (9,011)  (1,000)  0   (10,011)  0 
    Noninterest Expense 4,537   0   16,208   4,537   16,208 
    Total Adjusted Core Impact (4,474)  (1,000)  16,208   (5,474)  16,208 
    Adjusted Earnings Before Income Taxes 22,448   26,803   32,699   49,251   60,748 
    Tax Effect (3,261)  (4,153)  (5,873)  (7,414)  (9,644)
    Core Operational Profitability (2)$19,187  $22,650  $26,826  $41,837  $51,104 
              
    Diluted Earnings Per Common Share$0.87  $0.91  $0.57  $1.78  $1.51 
    Impact of Adjusted Core Items (0.13)  (0.03)  0.48   (0.16)  0.48 
    Core Operational Diluted Earnings Per Common Share$0.74  $0.88  $1.05  $1.62  $1.99 
              
    Adjusted Core Efficiency Ratio 48.22%  52.02%  44.19%  50.11%  45.92%

    (1)  In 2023, long-term, incentive-based compensation accruals were reduced as a result of the wire fraud loss and subsequent insurance and loss recoveries.
    (2)  Core operational profitability was $3.4 million lower, $751,000 lower and $12.2 million higher than reported net income for the three months ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively. Core operational profitability was and $4.1 million lower and $12.2 million higher than reported net income for the six months ended June 30, 2024 and 2023, respectively.


    Contact
    Lisa M. O’Neill
    Executive Vice President and Chief Financial Officer
    (574) 267-9125
    lisa.oneill@lakecitybank.com


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